The world's largest casino hub was cut by one grade to Aa3 and assigned a negative outlook, the rating agency said in a statement Wednesday. Moody's also lowered Macau's long-term foreign currency bond ceiling to Aa2 from Aaa and its long-term foreign currency deposit ceiling to Aa3 from Aa2.

"We expect the economy will continue to contract during 2016 and 2017, although the pace of decline may ease," Moody's said. While the government has tried to diversify the economy, "strategies centre primarily around broadening Macau's gaming and tourism market, leaving growth volatile and susceptible to shifts in external demand."

In response, the city's monetary authority reiterated in a statement the Chinese enclave's "fundamentally sound" economic and financial conditions, and noted that Moody's had also assigned Aa3 ratings to mainland China and Belgium.

Macau, which is due to announce its first quarter gross domestic product on May 30, saw its economy contract 20.3 per cent in 2015 as its casinos were hit by China's slowdown and a government anti-corruption campaign.

VIP gaming - the big money spinner for Macau - has been hammered by President Xi Jinping's crackdown which has deterred high rollers from traveling to the only Chinese city where gaming is legal.

Bloomberg Intelligence's index of Macau gaming stocks rose 16 per cent in the first quarter after about US$46 billion of market value was wiped out last year from the city's six gambling houses.

Chinese still make up about two-thirds of Macau's visitors, even as their numbers last year fell for the first time since 2009 and eased a further 1 per cent in the first four months of this year. Chinese visitors also cut their spending in the first quarter by a almost a third from 2014.

The city is looking at building a theme park and introduce international sporting events to diversify its economy, as it estimates non-gaming tourism receipts to grow to as much as US$14 billion by 2025, up from US$6.4 billion in 2015, according to a government plan this week.

Over the medium term, annual real GDP growth should stabilize at 1.5 per cent to 2 per cent, Moody's said. While the city continues to post fiscal and current account surpluses, the fiscal surplus in 2015 dropped to 7.9 per cent of GDP from 20.4 per cent due to the economic shock, and is expected to fall further this year, the agency said.